Greek Tragedy, by the Numbers

Greece’s gross domestic product shrank 14 percent from the end of 2009 to the end of 2012. That’s already a sharp drop, but it doesn’t include the contraction that might have been suffered by the country’s big shadow economy. Below, another view of Greek economic decline: retail sales. Those peaked in December, 2007. From there to December, 2012 they fell 32 percent.

In other words, almost a third less money is actually being spent in stores, double the nominal drop in GDP. What’s going on here? Much of Greece’s economic activity takes place outside the reach of taxation, government regulation and the official GDP figures. The damage there may be even worse than most of the figures for the official economy indicate. Money from the shadow economy gets spent in the legal economy, and though it may not be reflected in GDP numbers we see the effects at the storefront level, pummeling disposable income and sales. That would jibe with other evidence of the gravity of Greece’s suffering, like the number of poeople going without food and heat.

It’s worth saying here that this may be precisely the kind of post that makes some people roll their eyes and say, “People are suffering! Who cares about retail sales?” That has been the tenor of some of the discussion of the Rogoff-Reinhart math error. Obviously, real stories of suffering matter. The numbers do, too.

It’s not a given that every well-meaning policy is a good one: some of Europe’s economic problems now come from policies that were well-meaning to start. And those who want to demonstrate the failures of Europe’s austerity-driven policies need to be able to do it not only to those who already agree with them, but to those at the central banks and other institutions who disagree. Whether Greece’s economy shrank by 14 percent or 32 percent may not matter to most folks, but it does to Europe’s central bankers — or at least should.

Update: Over at the New Yorker, James Surowiecki takes a similar approach to measuring the U.S. economy, pointing out that U.S. consumption and retail sales have gone up faster than GDP. Surowiecki also point to the shadow economy as an explanation (I hadn’t read his piece before posting this); obviously–as Surowiecki himself points out–it’s an even bigger factor in understanding Greece.